ForUsAll Moves to Dismiss DOL Motion to Dismiss Crypto Color

The ForUsAll plaintiffs who have sued the Department of Labor based on the impact of the latter’s position on cryptocurrency investments in pension plans, arguing that “granting defendants’ proposal would invite a brave new world of agency lawlessness,” have moved to dismiss their motion to dismiss. .

In a motion to dismiss (ForUsAll Inc. v. US Department of Labor et al.case number 1:22-cv-01551, in the US District Court for the District of Columbia) of the Labor Department’s motion to dismiss, the plaintiffs comment that if allowed, then “agencies could publish official statements, approved by the agency’s head, and disregard the agency’s own rules (and an executive order), promote partisan positions, threaten to investigate any regulated entity that dares to reach a conclusion other than that strongly suggested by the agency’s biased position, and publicly attack, by name, any entity that announces an intention to make available a service the agency misunderstands. All this without judicial review, even in which the agency admits it chose not to review rulemaking because it would be politically expedient. No case law dictates such a lack of agency accountability, and no decision should motivate any federal agency to behave this way. The motion should be denied.”

The story

Back in June, record holder ForUsAll filed suit against the Department of Labor for its recent “arbitrary and capricious attempt to limit the use of cryptocurrency in defined contribution pension plans….” ForUsAll has been touting its retirement investment platform for small businesses that not only allows employers to offer alternative investment options within 401(k) plans, nearly a year ago they announced a tie-up with cryptocurrency platform Coinbase Institutional to offer cryptocurrency as the plan’s first alternative investment.

But in the wake of the Labor Department’s compliance assistance release in March about cryptocurrency investments in defined benefit plans, the suit claimed that “about one-third of the plans ForUsAll has discussed the matter with have indicated that, despite their interest in included cryptocurrency, they do not intend to proceed at this time in light of the defendant’s threats of enforcement.”

Last month, the Department of Labor filed a motion to dismiss the lawsuit, commenting that the release itself “does not have the force of law nor does it create new law. Instead, it reminds fiduciaries of their duties under the Employee Retirement Income Security Act of 1974 (ERISA).”

The Motion to Dismiss (the Motion to Dismiss)

“Cryptocurrency is a widely accepted asset class,” which “

The new proposal goes on to comment that in addition to “describing the Department’s biased and inaccurate view of cryptocurrency, the release makes at least two new and erroneous statements about how the duty of care imposed by the Employee Retirement Income Security Act (“ERISA”) applies to cryptocurrency.” First, the motion states that “the release does not simply ‘remind trustees’ of this duty ‘as expressed in the bylaws . . .'” and that, in fact, “the release never mentions the due diligence standard described in the bylaws, and instead describes the applicable standard of care as “extreme care.”

SDBA investigation

The proposal goes on to point to another controversial aspect of the Compliance Release, which deals with the self-directed brokerage account, noting that “the Department’s own long-standing regulations provide that the “duty to carefully select and monitor” investments applies to “designated investment options.” included on the plan’s menu of investment options, but does not include investments that are only available to participants if they choose to use a brokerage window.” The proposal goes on to claim that in response to “industry-wide criticism,” the Department of Labor sought to clarify that it “did not impose a duty to monitor ‘all investments to which participants have access’ in brokerage windows, but only cryptocurrency in brokerage windows.”

The proposal continues by noting that “Neither the release nor statements by DOL officials provide any coherent rationale for how there might be a duty to select and monitor investments in a brokerage window if those investments are cryptocurrency but not if they are any other type of investments” — and that the Department of Labor’s proposal “provides no such justification either. Instead, in addition to completely ignoring the Department’s regulations on this subject, the proposal misleadingly describes the above quotes as follows: Nowhere does the release prohibit the offering of cryptocurrency investment options . And the department has not stated otherwise. In fact, the complaint purports to quote a senior department official who stated that the department was not “required[e] th[e] obligation” as the publication’s critics claim, but rather reminded trustees that ”

Not “just employees”

The ForUsAll plaintiffs note that “the release was not issued by mere Department employees, but was endorsed by at least the Acting Assistant Secretary of Labor (the top official in the Department’s Employee Benefits Security Administration), who, in his own name, made an accompanying blog post that purports to explain the basis for the release Moreover, the Labor Minister himself has publicly described the release as a ‘ruling[]’ from the Ministry of Labour.”

The proposal goes on to note that “the Acting Assistant Secretary of Labor ‘publicly acknowledged that [the Department] considered using notice and comment rules, but decided not to do so for reasons unrelated to the substantive nature of the rules prescribed in the release, including what it considered to be politically expedient.'” They also noted that “the acting assistant labor secretary also publicly attacked, by name, the two leading companies that announced their intention to help plans to make cryptocurrency available to participants: ForUsAll and Fidelity.”

In that way, it is clear from the proposal that the plaintiff ForUsAll is injured. “Of the ‘plans that had already agreed to add cryptocurrency through ForUsAll’s pre-release program and DOL officials’ post-release public comments . . . approximately one-third of the plans with whom ForUsAll has discussed the issue have indicated that, despite their interest in including cryptocurrency, do not intend to proceed at this time in light of the defendant’s enforcement threats.’

‘Threat’ ratings

The plaintiffs pushed back on the Labor Department’s first motion to dismiss commenting that “these are not ‘unspecified enforcement threats.’ Rather, they note that the threats “appear prominently on the face of the release, which tells trustees they should expect to be asked how to square their actions with their duties of care and loyalty in light of “the department’s biased and inaccurate view of cryptocurrency ” described [in the Release],’ and as laws, beyond ‘behaviour[ing] an investigative program targeting plans that offer participant investments in cryptocurrency. . . to take appropriate measures to protect the interests of plan participants with respect to these investments under the auspices of brand new positions to the extent of the duty of care that applies only to cryptocurrency.”

Ultimately, the proposal says the release “takes at least two definitive positions, each breaking new ground: (i) a new standard of care, ‘extreme caution’, that applies only to cryptocurrency; and (ii) an obligation to monitor investments in “brokerage windows” that also apply only to cryptocurrency.”

The plaintiffs here argue that ForUsAll has properly pleaded, since it has an injury caused by foreseeable third-party reactions to the Department of Labor’s release—that the release represents the completion of the Department’s decision-making process, and has given rise to “direct and appreciable legal consequences,” that the release is in fact a “legislative rule requiring notice and comment regulations.”

More to come…